Hold Canara Bank; target of Rs 246: SPA Research

SPA Research's research report on Canara Bank

Canara Bank reported mixed set of numbers with stable operating performance but improvement in asset quality and better use of capital. NII declined by 7.7% YoY on back of 1% increase in credit and 13bps decline in NIM. Positive highlight of the quarter was 14% YoY increase in credit to high yielding segments of retail/MSME/agriculture and strong traction in CASA deposit with domestic CASA at 29%. Non-interest income grew by 47% YoY on back of sale of PSLC certificates worth INR 830mn during Q2. Slippages at INR 20.61 bn were at lowest level in last ten quarters. We maintain our HOLD rating on the stock with TP of INR 246 (0.85x FY18E ABVPS) on back of improving outlook on asset quality and equity infusion of INR 11.28 bn in 2HFY17E.

Canara Bank reported mixed set of numbers with stable operating performance but improvement in asset quality and better use of capital. On the operating front, the bank continues to increase granularity in both its asset and liability franchisee with retail/agri/MSME now constituting 55% of loan book and domestic CASA being 29%. While slippages were at ten quarter low of INR 20bn and management confident of slippages to remain A rated corporate. With fresh slippages under control and drawdown of corporate loans due to UDAY scheme being complete, we expect credit growth to pick up in 2HFY17. We maintain our HOLD rating on the stock with TP of INR 246 (0.85x FY18E ABVPS) on back of improving outlook on asset quality and equity infusion of INR in 2HFY17E.